change in fortunes!, page-8

"UBS analyst Glyn Lawcock said that after the unexpected decline in the iron ore price, equities had already retreated as much as 35 per cent from their highs at the start of the year ..."

Two observations on the AFR article:

1. Unexpected by whom? Expected falls in the I/O price due to rising supply and/or a China slowdown have been well flagged for a long time. It is very surprising that there was anyone in the investing universe who did not expect declines in the price of I/O. (Of course, the extent of the declines is a different matter.)

2. If Grange is expected to face a 40% decline in earnings this year, that implies UBS is forecasting a NPAT of $15.4 million ($25.6 *0.6) which is insufficient to maintain a dividend of 2 cps without dipping into the bank balance. I realise that NPAT is not the same as operational cash flow but the point is that UBS is making a very negative prediction and I have a great deal of difficulty in reconciling this view with the known data we have on expected production, guesstimated operating costs and the current pricing for pellets which point to a higher profit number. (Obviously, production is not the same as sales as the last quarterly evidenced, but the stockpiled material will, at some point, be converted into cash (they are not going to sit on it for ever) so, to my rather unsophisticaed mind, the differences between production and sales in this business are just timing and not substantive in the long run.)

I see nothing in here which is new - only an after-the-fact recognition of adverse market sentiment to the sector. While that sentiment may or may not continue to deteriorate (especially if I/O prices continue to fall which is certainly possible), I still believe that the fundamentals will eventually assert themselves.